Car Lease Immediate Buyout

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wonderbeagle
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Joined: Thu Apr 19, 2018 9:35 pm

Car Lease Immediate Buyout

Post by wonderbeagle » Sat Nov 16, 2019 10:58 pm

I saved up cash to purchase a vehicle, but now that I'm actually about to do it, my research (i.e. online forums) suggests that the best way is to take advantage of the large lease incentive being offered, and then immediately "buy out" the lease. There will be some early termination fees, but it will be outweighed by this large incentive. Additionally, I am told that a buyout should not require paying the (very high) interest portion of the remaining lease payments. Supposedly, the buyout is calculated as:

(a) Lease residual (pre-determined) +
(b) Sum of remaining monthly payments but only the depreciation portion (no interest) +
(c) Sales tax on (a) + (b)
(d) Buyout fees ($300 according to forums)

(a) + (b) is basically the negotiated selling price I believe, assuming I don't put in a down payment at signing. So then this basically becomes:
Selling Price + Sales Tax + Buyout Fees

In this case, the incentive is really large (more than $10k to lease, and only $3k for cash/finance). So if this holds water, then it seems to be worth the hassle. I don't know if there are some hidden gotchas in all this though? Thanks!

sd323232
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Re: Car Lease Immediate Buyout

Post by sd323232 » Sat Nov 16, 2019 11:32 pm

Are you saying you gonna save 7k if you lease? You should lease then.

Topic Author
wonderbeagle
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Joined: Thu Apr 19, 2018 9:35 pm

Re: Car Lease Immediate Buyout

Post by wonderbeagle » Sat Nov 16, 2019 11:48 pm

It's not quite $7k because of ~$300 in buyout fees plus a $650 "lease acquisition fee". So the true savings is probably about $6k. But then you have to factor in the time it will take to do the buy out. It's probably worth it though.

But I'm a big believer in the "there's no free lunch" wisdom (except for passive investing of course!) so I just feel like there must be a catch. :?

NewMoneyMustBeSmart
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Re: Car Lease Immediate Buyout

Post by NewMoneyMustBeSmart » Sat Nov 16, 2019 11:59 pm

read this:

https://www.facebook.com/TheEconomist/p ... 4319244060
A hundred-dollar bill is lying on the ground. An economist walks past it. A friend asks: "Didn't you see the money there?" The economist replies: "I thought I saw something, but I must've imagined it. If there had been $100 on the ground, someone would've picked it up."
inefficiencies exist in the market. Apparently that company believes they can subsidize/entice you to buy w/ this offer and doubt you/many people will do the work to find the loophole and exploit it.

If you are saying you'll save $6k - that sounds good. Maybe hire an attorney to read the fine print to make sure - $500 of your $6k savings might be a good investment.

Leesbro63
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Re: Car Lease Immediate Buyout

Post by Leesbro63 » Sun Nov 17, 2019 9:42 am

This doesn’t pass the smell test and sounds too good to be true. But if it IS true, I’d just negotiate the best lease possible and not do anything further till lease end. There might end up being a reason you’ll want the “put option” to NOT buy the car. And if you do still have any to buy it, you’re no further behind than if you had bought out the lease early on. If I understand you correctly.

Helo80
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Re: Car Lease Immediate Buyout

Post by Helo80 » Sun Nov 17, 2019 9:53 am

I'm somebody whom does not view car leasing as negotiating with Satan himself, nor do I start switching and immediately come to BH to describe how a dealership tried to scam me when leasing or payments were brought up....


I agree with another poster... I do not understand your immediacy in desiring to pay off the car. For some models/trims and leasing incentives, yes, pricing discrepancies like what you describe have emerged. But, say you buy the car and have a tremendous amount of issues with it during the time of the lease.... you're now stuck with the car since you bought the title. Or, say the honeymoon phase of new car ownership is over and you hate the thing.... you're now stuck with the title.

You buy the option to delay buying the car until (likely) 35 months or so from now... I don't see why you need to have the title over as soon as the first lease check clears.

Topic Author
wonderbeagle
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Re: Car Lease Immediate Buyout

Post by wonderbeagle » Sun Nov 17, 2019 11:02 am

The reason I would buy out the lease immediately is to avoid the substantial rent (interest) charge that would be paid as part of each monthly payment. The base effective rate, which I'm getting, that the manufacturer has set for anyone availing of this incentive is 6.7% (0.00187). If I were to take the lease to maturity, I would give up another $3k of the benefit of this approach. A guaranteed 6.7% return on investment (by buying it out early) seems like a good option.

I am actually now going to see if the dealership would be willing to lower the selling price if I would be willing to let them increase the money factor. I'm basically encouraging them to give me a predatory loan. It will be a strange conversation...

Your points about giving myself the option to not keep the car are well taken though. It could indeed end up being a terrible car for some reason. Perhaps I will wait a few months and pay some interest, in order to see if the car has major issues.

Helo80
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Re: Car Lease Immediate Buyout

Post by Helo80 » Sun Nov 17, 2019 11:13 am

wonderbeagle wrote:
Sun Nov 17, 2019 11:02 am
The reason I would buy out the lease immediately is to avoid the substantial rent (interest) charge that would be paid as part of each monthly payment. The base effective rate, which I'm getting, that the manufacturer has set for anyone availing of this incentive is 6.7% (0.00187). If I were to take the lease to maturity, I would give up another $3k of the benefit of this approach. A guaranteed 6.7% return on investment (by buying it out early) seems like a good option.

I am actually now going to see if the dealership would be willing to lower the selling price if I would be willing to let them increase the money factor. I'm basically encouraging them to give me a predatory loan. It will be a strange conversation...

Your points about giving myself the option to not keep the car are well taken though. It could indeed end up being a terrible car for some reason. Perhaps I will wait a few months and pay some interest, in order to see if the car has major issues.

I got you. The money factor is a bit high if you have excellent credit. You should be able to pay off the lease without issue a few months down the road should you go this route.

That being said, I would caution against using terms like "predatory loan" on 6.7% interest rate. With money lending in the last decade... we as consumers have been conditioned to think that anything much more than 4% is bad. To me, predatory is when you start entering the 15% to 20% on up range which is Santander's bread and butter.

Leesbro63
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Re: Car Lease Immediate Buyout

Post by Leesbro63 » Sun Nov 17, 2019 11:34 am

So the game is to get the lowest selling price by agreeing to the highest interest rate, “kickbacked” from the bank, to the dealer, on the lease. I assume the dealer makes money on the lease so he doesn’t care if it comes from the price if the car or from the bank providing the lease. Then, ASAP, you pay off the lease with no prepayment penalty, so the bank ends up not getting the juicy high interest lease payments that the dealer kickback is based upon. I guess I have no problem with this, although I’m skeptical that there are “gotchyas”. Banks gamble like this all the time, knowing that only a tiny percentage will actually pay off the credit card/loan/lease and negate the value of the upfront bonus (which is, in this case, a higher “kickback” to the car dealer).

MathIsMyWayr
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Re: Car Lease Immediate Buyout

Post by MathIsMyWayr » Sun Nov 17, 2019 12:20 pm

How much will be the total cost to you when you buyout the lease now? Sum of what you have already paid and what you have to pay. What will be the best price you can get the same car for? Since the car is essentially new, assume you are buying a new car. No long explanation, just give a number.

Topic Author
wonderbeagle
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Re: Car Lease Immediate Buyout

Post by wonderbeagle » Sun Nov 17, 2019 12:24 pm

MathIsMyWayr wrote:
Sun Nov 17, 2019 12:20 pm
How much will be the total cost to you when you buyout the lease now? Sum of what you have already paid and what you have to pay. What will be the best price you can get the same car for? Since the car is essentially new, assume you are buying a new car. No long explanation, just give a number.
I will not know for sure until after the purchase is made and I can ask for a buyout quote through the manufacturer's financial arm website. The contract will contain the method for calculating that amount (but not the amount itself) so I will review that carefully before signing.

Leesbro63
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Re: Car Lease Immediate Buyout

Post by Leesbro63 » Sun Nov 17, 2019 1:43 pm

wonderbeagle wrote:
Sun Nov 17, 2019 12:24 pm
MathIsMyWayr wrote:
Sun Nov 17, 2019 12:20 pm
How much will be the total cost to you when you buyout the lease now? Sum of what you have already paid and what you have to pay. What will be the best price you can get the same car for? Since the car is essentially new, assume you are buying a new car. No long explanation, just give a number.
I will not know for sure until after the purchase is made and I can ask for a buyout quote through the manufacturer's financial arm website. The contract will contain the method for calculating that amount (but not the amount itself) so I will review that carefully before signing.
Also if you have a trade, you might lose a sales tax credit and end up paying sales tax on the full amount of the new vehicle without getting credit for your trade in (depends on how your state computes sales tax).

Leesbro63
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Joined: Mon Nov 08, 2010 4:36 pm

Re: Car Lease Immediate Buyout

Post by Leesbro63 » Sun Nov 17, 2019 1:46 pm

wonderbeagle wrote:
Sun Nov 17, 2019 12:24 pm
MathIsMyWayr wrote:
Sun Nov 17, 2019 12:20 pm
How much will be the total cost to you when you buyout the lease now? Sum of what you have already paid and what you have to pay. What will be the best price you can get the same car for? Since the car is essentially new, assume you are buying a new car. No long explanation, just give a number.
I will not know for sure until after the purchase is made and I can ask for a buyout quote through the manufacturer's financial arm website. The contract will contain the method for calculating that amount (but not the amount itself) so I will review that carefully before signing.
I suspect this is where you’ll find the “gotchya”.

MathIsMyWayr
Posts: 1117
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: Car Lease Immediate Buyout

Post by MathIsMyWayr » Sun Nov 17, 2019 3:15 pm

Leesbro63 wrote:
Sun Nov 17, 2019 1:46 pm
wonderbeagle wrote:
Sun Nov 17, 2019 12:24 pm
MathIsMyWayr wrote:
Sun Nov 17, 2019 12:20 pm
How much will be the total cost to you when you buyout the lease now? Sum of what you have already paid and what you have to pay. What will be the best price you can get the same car for? Since the car is essentially new, assume you are buying a new car. No long explanation, just give a number.
I will not know for sure until after the purchase is made and I can ask for a buyout quote through the manufacturer's financial arm website. The contract will contain the method for calculating that amount (but not the amount itself) so I will review that carefully before signing.
I suspect this is where you’ll find the “gotchya”.
Whenever a sales person tries to explain the benefits of certain things or options (cars, loans and financing, rooftop solar panels,,,) to me, I stop him and ask for numbers. I tell him that I can do math for myself and that decide which is the best one for me.

Topic Author
wonderbeagle
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Joined: Thu Apr 19, 2018 9:35 pm

Re: Car Lease Immediate Buyout

Post by wonderbeagle » Wed Nov 20, 2019 11:35 am

In case anyone is interested, this process went as expected. I spent a lot of time reviewing the contract before signing (surprisingly an auto lease contract is not that bad to read through) and the early purchase option is pretty clearly described. The "Buyout Quote" is now available online and it matches my calculations. So far, no gotchas.

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